Australian dollar extends rally, market narrows odds on hike
- The Aussie firmed 0.1% to $0.7011, having risen 0.3% overnight to as far as $0.7017
The Australian dollar rallied as US yields fell and RBA rate hike odds increased after hawkish comments on persistent inflation, while the kiwi dollar eased ahead of its own inflation data.
- RBA's hawkish stance on persistent inflation.
- Market's increased odds for Australian rate hikes.
- Upcoming Australian and New Zealand inflation data.
SYDNEY: The Australian dollar was looking to rally for a fourth session on Wednesday as US yields declined and investors narrowed the odds of another interest rate hike at home after hawkish comments from a central banker.
The Aussie firmed 0.1% to $0.7011, having risen 0.3% overnight to as far as $0.7017. Resistance lies around $0.7045, with support at $0.6895.
The kiwi dollar eased a fraction to $0.5676, after gaining 0.4% overnight to test resistance at $0.5700.
More resistance comes in at $0.5749, with support at the recent 18-month low of $0.5566.
Reserve Bank of Australia Deputy Governor Andrew Hauser said tighter monetary policy was working but the inflation outlook still looked “materially worse”, in part due to high oil prices.
Hauser emphasised the need to anchor inflation expectations ahead of the RBA’s November 3 board meeting, where it will discuss whether to lift rates for a fifth time this year.
Markets reacted by nudging the chance of a November rate rise to 44%, from 30% at the start of the week, while a December move shifted up to a probability of 64%.
Data on consumer prices for the third quarter are due next week and analysts suspect core inflation could rise a hefty 0.9% to 1.0%, keeping the annual pace at 3.5% and well above the RBA’s target band of 2% to 3%.
Hauser said it was “pretty clear” that the inflation outcome would likely be higher than the RBA itself had forecast.
New Zealand’s consumer price figures are out on Thursday and median forecasts are for a rise of 0.8% in the third quarter, which would see the annual inflation rate slow to 3.8% from 4.1%.
However, recent increases in fuel costs and airfares suggest inflation will pop higher again this quarter and top the Reserve Bank of New Zealand’s forecast of 3.9%.
Markets imply almost a 90% chance the central bank will lift its official cash rate (OCR) a quarter point to 3.0% when it meets next week, and take rates to 3.75% next year.
“Higher for longer inflation is a major headache for the RBNZ as it risks pressuring inflation expectations higher,” economists at ASB wrote in a note.
“Our view remains that rates will peak at 3.25% by the end of this year, but risks are heavily skewed to a higher OCR in 2027.”